The Tipping Point?

$165 million, of course, is less than one-tenth of one percent of the total amount of bailout money given to AIG in one form or another. Yet it may turn out to be the $165 million that broke the camel’s back.

The AIG bonus saga neatly encapsulates many of the problems that we have identified with the financial system and with the bailout to date.

The bonus contracts – which have still not been released to the public – reflect the instinct of Wall Street to favor its employees over any other stakeholders. In the companies I worked at, it was common practice that all bonus plans were contingent on overall company performance: if the company had no money, you didn’t get any, either. Even our commission plans for sales people included the caveat that the plan could be changed by the CEO at any time for any reason. The fact that AIG did not similarly protect itself shows the Wall Street habit of putting itself first, or a failure to recognize the possibility of a bad year, or, most likely, both.

The failure of the Treasury Department and the Federal Reserve to review and renegotiate the bonus plans as a condition of federal assistance last fall – despite the fact that the plans had been public knowledge since May – reflects the rushed, ad hoc nature of the deals that were struck. Or it reflects the understanding in Washington that the ways of Wall Street had to be respected. Or, again, both. And the failure to even say anything about the bonus plans since the initial bailout – even just to get ahead of the obvious public relations fiasco – reflects an overall strategy that amounts to hoping that problems will go away.

The seeming inability of the government to do anything but throw up its hands reflects the failed strategy of the bailouts so far: provide as much cash as needed, but do everything you can to minimize the impact on the companies being bailed out. The fact that this is happening at AIG – the one the government has owned 80% of since September – shows that any “nationalization” so far has been a red herring. In a bankruptcy, or a government conservatorship, employees and other creditors would not have a legal right to all of their money. In the current situation, by contrast, AIG management can choose whom it wants to make whole, which is what makes self-dealing and other sweetheart deals possible. In this context, $165 million in employee bonuses pales against tens of billions of dollars of collateral provided to counterparties – beginning with Goldman Sachs. Yes, this was to cover open trading positions. But if AIG had gone bankrupt or had been taken over, it’s not clear that Goldman would have been first in line.

The testaments to “the best and the brightest” – here, referring to the people of AIG Financial Products – reflect, I don’t know, either absolute, brazen obscenity, or a world-historical example of making the mistake of believing your own hype. The fact that people on Wall Street believe that they are the best among us is bad enough. The fact that people in Washington are willing to accept it is worse.

However, this scandal may yet serve a purpose. One characteristic of both administrations’ responses to the crisis has been to devise subsidies for the financial sector that are too complicated for even conscientious readers to make out, such as the asset guarantees for Citigroup and Bank of America, or the preferred-to-common conversion for Citigroup. Employee bonuses, by contrast, are strikingly easy to understand.

The key issues throughout this crisis have been political as much as economic. In this case, the Obama administration has been taking a difficult political position – propping up financial institutions in their current form and insisting everything will be OK – when it would have been easier to play the populist card. This was by no means an inescapable choice; according to news reports in February, David Axelrod and Rahm Emmanuel were in favor of being tougher on the banks. Perhaps the AIG bonus scandal will force the administration’s hand toward the decisive action that we need.

70 responses to “The Tipping Point?”

Every time i see Geithner speak in public, until recently, i held out hope that he and President Obama would UNDO the bankrobbery of the fall–In my LaLaLand, somehow, we could get an admission that it was wrong to deny Lehman of the 6Billion loan, true and clear self dealing to “save” AIG instead of (if AIG is so critical to our ‘financial system” ) conservatorship or bankruptcy instead of passing 100% on each dollar to counterparties out the back door, that Bank of America would undo their deal with Merrill, all money passed out on that weekend TARP1 party would be called back, with very short time limits (weeks maybe one month), or those firms currently using the money would also, be taken into conservatorship or bankruptcy. If anything like this could occur, our President would be viewed as one of the greats…but since Mr.Geithner’s recent public testimony, i gave up hope that he or our President could or would ever stand up and insist on this justice….

Thank you for your posting, I may just try a little timy bit of hope that you are correct about a possible “tipping point” that could bring back goodness and justice to our government…i think it would be a powerful gift to our country and our world.

I used to be confused about the cult expressing itself in terms like “best and brightest”, “talent”, “innovation” being used in ways that clearly had no relation to the English language.

This was obviously an Orwellian ideological language, but it took me awhile to figure out that the key is that all these terms are being used in a corporatist, not even a capitalist, sense.

Therefore, whereas innovation normally refers to creating some new real value, and talent refers to innate ability at some real endeavor, here innovation refers only to finding new ways to seek and collect rent, the talent referred to is that of a con man, and the pivotal figures are the lobbyist, the lawyer, the PR flack, the captured regulator, the corrupt politician.

I don’t doubt they’ve been so immersed in this ideology for so long they have come to completely believe in it, and are incapable of seeing anything from any other perspective.

This also goes to the inability of this administration to look at things any other way. Whether one’s gut response to these AIG bonuses was, “this is unconscionable, these contracts are on their face invalid, let’s figure out how to fix this, but fix it we must and shall”, as opposed to “contracts are sacred, and we can’t do anything about it”, is clearly a matter of ideology and political will.

(By now strict legalities have nothing to do with the matter.)

That’s why the exemplary adminstration response was Summers blathering about the “rule of law”, how we can’t “abrogate” and so on. This is because he’s a hard-core ideological warrior for corporatism and has dedicated his life to enabling looting operations like this one.

He may deplore, on a tactical level, the brazen shoddiness of this particular extraction. But he cherishes this basic outcome. So of course he’s going to claim it’s a legal fait accompli, when it is in fact no such thing.

James, do you think that the ” public/private “partnership is really another scheme to to “give” money to the entities that brought us the toxic waste? It would seem that special purpose vehicles and other entities that are affiliated with the banks will be the biggest buyers of the toxic waste. So, the banks get a clean balance sheet, their subsidiary or affiliates get the assets with cheap financing and a loss limit of some sort (20%?)? More free money and profits to the makers of the toxic waste?

Apparently there was an attempt to put limits on executive compensation for TARP recipients into the stimulus package, but under pressure from the administration, neutered in conference committee: http://is.gd/nMP5

I hope Elizabeth Warren and the TARP Congressional Oversight Board’s next report will deal with AIG’s bonus and counter-party payout issues.

But even then. Even with all the heat that these various deals have generated and the public ferment. There’s still isn’t nearly enough of a response from the politicians, those bed-fellows of the banks.

With the bailout et al, Moral Hazard in banking has been swept out the door – just like the healthcare/insurance issue. Our healthcare costs are high become we, the insured, subsidize piss-poor personal health choices of individuals. Now we, the tax-payers, are subsidizing piss-poor banking choices.

I just don’t understand?!?! If we own the damn company (more or less), then at the very least we should be able to tell every last one of those executives, that if they really want that bonus money, fine, but clean out your desk today otherwise your going to refuse it regardless of what that piece of paper says.

Just a few observations.
We are outraged, aren’t we, in part because we know about the bonuses. That’s because we own AIG, and as a government owned agency we don’t pay people this kind of money, particularly when they’ve performed so poorly.
But what if we didn’t own AIG, and what if they had been marginally profitable, or even had lost a little money? Would we still be outraged by these bonuses?
In the real, private capitalist world, bonuses occur in order to keep people perceived to be good at some task or another. This year it wasn’t so great, but wait ’till next and these performers will deliver the bacon.
Is it the amount of the money that outrages us? Or do we truly accept this level of compensation, it’s just not acceptable because they lost money?
We do have our Kings and Princes still, don’t we. The great unwashed fundamentally approve of these levels of compensation, even though we have two income families, latch key children and 40 million citizens without health insurance.
Why is there this, so obvious, disconnect? This blindness.

Unless the Democrats in congress are VERY protective of Tim Geithner, his role in the AIG fiasco and other bailouts will be impossible to continue to ignore. Barney Frank tried to make the point this morning that it wasn’t congress or even the Treasury that originally bailed out AIG, it was the Federal Reserve under Ben Bernanke.
But Frank was being intellectually dishonest, at best. Geithner was central to what happened–or didn’t happen–in the cases of Bear Stearns, Lehman and AIG. Also, Hank Paulson was in on a key meeting with AIG. Attending that meeting with him was the current head of Paulson’s old firm, Goldman Sucks.
Finally, TARP money was later infused into AIG. This gives congress all the cover that they need to really go after Treasury under both Paulson and Geithner–if they have the political will to do so. If we own eighty percent of AIG, why don’t we own $12 billion worth of Goldman-Sucks?

The outrage over the AIG bonuses is just a childish temper tantrum. If you bail out a company they meet their contractual obligations – all of them. Now why is billions in payments to foreign banks acceptable while millions in bonuses to employees is an outrage? The real issue is the trillions of dollars of liabilities dumped on present and future American taxpayers.

You are so right. In one sense AIG bonuses are minor, a side show. But in another sense they are “mind size”, easy to grasp when so much else is beyond our worst imagination.

Governments need to be very, very careful of these irritants because they will trigger vast, violent public reaction far more surely than the bigger issues. In the UK, Fred the Shred’s (former CEO of RBS) pension scandal is doing exactly the same thing.

Severed heads on pike staffs outside the city walls as a warning to others, you wait.

All of the things mentioned in the article are true. However, we Americans have to take a look into the mirror to see yet another complicit party in the debacle.

Something is dangerously wrong when “investment” is nothing more than “speculation” and the primary shareholders of corportations (mostly Mutual Funds, Hedge Funds, and Retirement Funds) never speak out or vote against the practices of the companies that we own through their management. These funds, on our behalf, vote with the Boards of Directors almost 100% of the time and we only look to see that the value of our funds are growing.

We no longer want a sustainable income stream from a solid company with solid sales. We demand rapid growth of share prices and encourage risky behaviors to bolster our individual balance sheets.

Yes, AIG and their ilk are really bad. But, we, the very people who have owned these companies, have been complicit in allowing them to take unreasonable risks all in the name of getting rich quick.

bernanke says he doesnt have the legal authority deal with aig. if the taxpayer owns 80% why cant we threaten counterparties, bonus recipients, and bondholders with “renegotiate” or else we declare bankruptcy? in this way we could unwind the company and its obligations and end this madness and waste of taxpayer money.

Wall Street and our Fedreral Government seem to have been working in a vacuum. Everything has been said that can be said about how the taxpayers are being taken to the cleaners “AGAIN”. I have a feeling that average middle class citizens that are not included in any polls that are being presented as the gospel. You can only slap someone so many times before they retaliate. The Feds and Wall Street act like when all this is over everyone is going to pull all their money out of their mattress and shove it into the market. Like they will trust Wall Street fully again in the near future. Have you ever heard the term a pipe dream, well look at Wall Street and the Fed, you will know exactily what it means. Slap me again and say it isn’t so Jim. I’m a small business of ten employees, and yes I’m waiting with bated breath for my bail out. — I love saying that ——- it sounds sooooo funny
James have a good day, God bless you yours and America.

OH James — I forgot to ask — Do you really think America can pay all this back and handle the Deficit, Trade Imbalance, off Budget Money (Disaster, an Emergency funds), and the Debt, without killing our dollar? UUuummm just wondering. Take care,

AIG, TARP, TALF, the “spendulus” package and the gargantuan federal budget are simply different aspects of the same flawed concept: People in power (whether private or public) siphoning taxpayer money for their own purposes. AIG and its counterparties got the dough because they had friends in power and could convince these powerful friends that inaction would “bring down the system”. Instead of saying, yes, we’ll be sure that the depositors and policyholders are protected, the Feds trusted the AIG leadership to do the right thing.

In the same way, O’bama is helping his political friends in state and local government to skate through the crisis with trillions in taxpayer handouts, trusting the local pols to “do the right thing”.

Who is “The Forgotten Man” in all this? The taxpayer. Amity Shlaes his it right

I started my career with AIG (Water St NY) the parties and perks were lavish to say the least. Now, Edward Liddy, will explain to Congress today that while he really didn’t “approve” of these big bad bonuses being paid to AIG executives, he felt he had no choice but to honor employee contracts. After the fifth time I said “The dog ate my homework”, Mrs. Smith said, “Its about time, you should get a new dog or at least better excuse”

Who is minding the store? Had AIG gone into bankruptcy, would a judge have permitted bonus payments as legal claims ahead of the debt holders and stockholders? Geitner was hired more for his political skills than his economic expertise, yet he expects us to be persuaded that recovering $165M of the latest $30,000M (of a total of $700,000M) is a meaningful step toward stewardship of the taxpayers money. Hey, Barack, where’s the CHANGE that I voted for? The sense of entitlement exhibited by the financial community has got to be confronted head on. Stop this nonsense and bring in some tough business people. Academics just can’t cut it.

Read the fine print: Econobrowser points out the following section of the ARRA:
The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.http://www.econbrowser.com/archives/2009/03/aig_outrage.html
Nobody seems to know who is responsible for this clause. Don’t ask your Senator; ask a lobbyist.

I seem to recall that there was some curiosity about Blankfein’s presence at those key Paulson-AIG meetings. So are we now to believe that Treasury was clueless about the $$billions that were destined to flow through AIG to Goldman and others? On another note: Better that AIG meet their obligations under the CDS’s rather than hoard the money, or am I not thinking clearly?

Evidently the retention bonus business is still alive and well and closer to the Congress and the Administration than we care to believe. The Wall Street Journal reports today that Fannie and Freddie are due to pay out retention bonuses. The Federal Housing Finance Agency approved the bonuses for the same reason that AIG claims these “payoffs” are necessary. These two Government Sponsored Entities, Fannie and Freddie, are now in conservatorship. What is it about “conserve” that the conservators do not understand?

There’s plenty of software out there that will track changes to documents, including who made each edit. If the Congress needs help installing such a system, so they aren’t shocked by these inexplicable changes, I’d be happy to contract for it. Heck, I’d even throw in a converter to post PDF versions of every bill to the Web for everyone to see, complete with the change-management markings; every line of every bill would be marked with “added by user X in Senator Y’s office.” A software requirements question: Do you think posting just the final bill would be sufficient, or would you want regular updates as the text was being edited?

I never understood why anyone would accept the toobigtofail bruting by Paulson, Geithner, Summers, Bernake. Does the fact that all these individuals were directly responsible for either conjuring or cloaking the economic crisis not raise any suspicion?

The FED and it’s ability to simply print money, the US fiat currency is ultimately the lender of last resort that bailed out companies that FAILED.

If these companies were allowed to FAIL or go bankrupt or into conservatorship, or recievership (and they actually did, or will FAIL anyway) – then the government, the FED would have be forced to move trillions of tax payer dollars into the markets and the finance sector to backstop and stabilize the global financial system. This is basically what has happened. The terrible flaw in the bush and Obama economic strategies is the FAILED institutions, FAILED managements, and FAILED models have for some unknown, unknown reason been protected and shielded by our socalled political leaders including the Obama team and kept in place and unpunished. (It is shattering betrayal for me personally) and disappointment for those poor and middle class America’s who supported Obama’s CHANGE platform, becasue – tragically, – nothing has CHANGED!

The predator class still riegns mercilessly over, and feeds ruthlessly off the poor and middle class.

The predator class is hoisted on high as untouchable immune, obdurate, Olympian, and supremist, – not too mention imponderably wealthy. The poor and middle class are expected to suffer and burdern all the costs and terrible debts and deficits, and give back wages, and loose benefits and bargaining power, see their retirements and homevalues evaporate, pay more for products and services, and mindlessly bow to and sheepishly obey the predator class mastersoftheuniverse in silent subserviance.

Paint all the lipstick on this pig you want, but the US government, and American taxpayers own these companies, no matter what perverse and twisted logic Geithner or Summers, or Bernake concoct and brute to the contrary.

Predator class heads must roll, or there will never be any hope of restoring stability, crebility, equalitity, and legality to the financial system.

Predator class heads must roll, or there will be a real horrorshow blowback from the poor and middle class who are suffering real visceral hardship, while the predator class expropriates taxpayer funded bailouts and award themselves bonus’ for FAILURE.

What can the general public understand? They can understand $165 million in bonuses to people, many of whom helped run AIG into (and further) the ground.

What can’t the public understand? The CDSs and the possibly trillions of dollars of liabilities.

What else can the public sense? That Obama’s team doesn’t seem to be doing diddly to protect the public.

What does Obama have control over? Only future events. This may include getting rid of Geithner to try to show the public Obama really means business. Would that be focusing on the most important problem? Probably not. But the public is only going to get its mind around very visible actions.

Other than ditch Geithner, what else could Obama do to try to show the public he means business? (This is not a rhetorical question. What do you think would make sense?)

I may have to agree with you. It seems clear that both the the Bush and Obama teams, as well as the Dems and GOPs in Contress, intentionally CHOSE to exclude provisions that would limited compensation to employees of bailed-out companies. And the legislation specifically agreed that bonuses such as these would be honored.

Seems like Obama and Dems and GOP alike are now just trying to look good because the American public knows can picture $1 million+ bonuses and are angry about it. I’d much prefer that Obama would talk straight to the country and say that his team and Congress blew it.

The Democrats infrastructure and construction bailout jobs program is more of the same old scam?

The tax payers that have obeyed the laws, paid the taxes and fought the wars and built this Nation are getting screwed by Corrupt/Stupid/Worthless Politicians and Greedy crooks at every level!

This is the same old scam, reward the Rich Bankers with billions in tax payers money and the invading horde of illegals Aliens with Jobs, Free medical, Free education, Welfare, Prison cells and make American Citizens pay for every Crook, Criminal, Peon & Con man in the world!

The infrastructure and construction jobs without E-verify will put the millions of Illegal Aliens back to work, so they can send money home to support Mexico & South American at the expense of American workers and our economy! The contractors can charge the tax payers union scale, hire Illegals at slave wages, pocket the profits and American citizens pay both the wages and the billions in cost to educate the illegals many children, provide medical, welfare and prison cells.

You would think the Politicians would be content with just outsourcing all the jobs that can be done offshore but No they want to bring in Slave labor & Welfare votes ( while ignoring Article IV Section IV of our Constitution against invasion, the rule of Law, and their Oath of office) to take the jobs that cannot be outsourced! To add insult to injury they make the American citizens still working pay billions in extra taxes for schooling, provide medical, welfare and jail cells for the invading horde that are taking our jobs and driving down our standard of living! While keeping busy Robbing, Raping and Killing American citizens at an rate that Bin Laden can only dream about!

The Democrats love the millions of Welfare votes to further their Socialist agenda & the Republicans love the slave labor for their Pay Masters in the Chamber of Commerce and business.

If we are realistic and look at the havoc caused by the millions of invading Hispanics on our communities, culture, crime, economy, welfare, taxes, environment, schooling and standard of living the only conclusion possible is that no Nation can withstand or assimilate an tidal wave of Uneducated Third world citizens that come here illegally from another culture, for the jobs and welfare, while keeping loyally to their home countries!

This Nation is changing to the very same type of culture and society the invading millions have created, built and sustained for 100,s of years and are now fleeing in their own Countries!

One has to only look at Calif. which is basically an Bankrupt state that cannot afford to provide Welfare, Schooling, Medical, Prison cells etc. for millions of MS-13 Gang bangers, Drug dealers, Rapist and other assorted Criminals and uneducated third world rejects from Mexico!

In a very few years it will be impossible to see where Mexico ends and Calif. begins as both will be an third world cesspool!

Failure to secure our borders and reward the Invading horde for their invasion and their relatives in an never ending chain with American Citizenship is nothing less then committing National Suicide & will assure our future is an over populated Spanish speaking third world Nation that is an Cesspool of Corruption, Crime, Poverty and Misery just like Mexico!

I agree…so your comments lead us to question whether President Obama is getting the advice/full story he needs with which to make healthy decisions. Even if he is getting the rounded story from his Cabinet will the Congress, blinded by campaign contributions from “huge money” act in the best interests of the country?

I am falling further into the belief that we have allowed a Royalty to be created in this country that, by default, acts in selfish greedy immoral self interest. THE HUBRIS, OH THE HUBRIS!
Mike

Yes to all you say, Charles.
But I do not feel that it is a childish temper tantrum to cry our beloved country for its having fallen into the hands of these super arrogant, insanely greedy, infected with a sense of entitlement, sons of errant mothers.

I’m curbing my outrage… We don’t know to whom, how much..I mean these could be branch managers who met goals etc… and is part of their normal compensation, to which they rely on to make ends meet. If that’s the case, I’d say let them have them… If however its some bullshit bonuses to the executives that bankrupted the company, that makes no sense at all.

On a more constructive note, I see that the idea of a National Bank has come up again, this time at the Huffington Post. Of course, Baseline has posted on this previously, here. And so has Angry Bear, to name just two. Just can’t keep a good idea down, fortunately.

“This also goes to the inability of this administration to look at things any other way.”

I am not attacking your saying something of this ilk more than any other, but if we take the Way Back Machine into pre-Jan 20th, we saw an administration THEN that wasn’t lifting a finger in any way other than corporatist, and for the most part wasn’t lifting ANY finger. And talk about ideology!

I am not terribly happy with the seeming procrastination in the WH and hoping against hope that something magical will happen – but I am not at all certain that this is the case. Obama has only been there for 9 weeks, for heaven’s sake. Bush had 3 months at least, to get this straightened out, and in that time, all he did was give away the TARP money with little or no strings and no transparency, and then went and sat on his ass, and wouldn’t let ANYONE know WTF was going on.

NOW we have at least some transparency, and we are seeing them, warts and all. So what if they aren’t handling it perfectly? They have not figured out the “Open Sesame” for getting out of this yet? No one else has, either.

Obama in this is like a reliever in baseball coming in in the top of the 9th inning down 3 runs already, with no outs, the bases loaded and a 3-0 count on the batter, and the league’s best hitter at the plate, to boot. And the season is riding on this game. The previous pitcher walked the bases loaded and had a 3-0 count on the batter when he left. Any mistake at all just makes the situation worse. The hitters hope he can hold them to at least 1 run, so they can maybe find some way to manufacture a rally in the bottom of the 9th. Geithner is the catcher, and he is calling for a fastball in tight. Bernanke is the shortstop, and he is on the mound, too, encouraging Obama to buckle down and get this guy. We don’t know what Obama really wants to do, and we are all on the edge of our seats. Does he go with Geithner’s call? The infield is in for the play at the plate. Obama has to keep throwing strikes and hoping the batter will somehow hit one right at one of the infielders.

If he fails to throw strikes, he loses the game. Who is to blame then? The official scorer gives the loss to a previous pitcher. But the fans want a miracle pulled out of his butt. If he throws a hittable pitch, same thing – the season is lost. There is a reason that closers in baseball get the big bucks. They have to want to be in there with the game on the line.

Give Obama credit. He wanted to be in there. I hardly think they are sitting in the Oval Office with worry beads, hunched up and dreading the next bit of news. They are trying to find a path to solvency, for the whole world. I wonder what is taking them so long?

If they get us out of this mess, will we all give them credit? If it happens in 3 months, of course. How about 6 months? 9? 12? 18? 36?

With the Great Depression ALREADY 3 YEARS OLD, FDR came into office and it still took him almost four full years to get the economy somewhat on the right track. SEVEN years in total.

The meltdown happened in September, only half a year ago. Obama has not had 3 years of his predecessor’s failures to observe and see what did not work. Part of that is his predecessor didn’t do a damned thing. Obama has had the ball in his hands for only 9 WEEKS.

Cut the man some slack, people.

Do I think he has all the answers? No. But at least the man is on the field and willing to tackle it. If it doesn’t work the first time out, are we all going to label them losers? FDR said in 1933 (paraphrased), “We have to try SOMETHING. Several somethings. And we have to see how well they work. And if they don’t, we change what the heck we are doing, until we find things that DO work.” Some of FDR’s first efforts didn’t work out well at all. The idea that everything just went smoothly during and after the First 100 Days is a bunch of malarkey.

Some of Obama’s efforts won’t work out, either. But the man is intelligent enough and honest enough to admit it and go try something else. That much credit I give the man.

…Here’s the windup! And the pitch. . . .

We won’t know what works – if the batter puts the ball in play, or strikes out, or takes ball four – until he lets fly. The ball has not even left the pitcher’s hand yet, and everyone in the hot stove league is opining that he should be throwing this pitch or that pitch, high and tight or low and away. Just because he stepped off the rubber doesn’t mean he doesn’t have an idea what he wants to do.

It is easy to sit on the sidelines and kibitz. Everybody is trying to read his mind. Already people have been wrong about him. Many people said he wouldn’t deliver on his campaign promises. He’s done a remarkable job of proving them wrong. Many people said he was failing getting the Stimulus package through Congress. But here we sit, with it a done deal. A lot of people are bitching because it isn’t exactly what they would have done. Whoop-de-do, it isnt’ perfect legislation. That’s never happened before.

The man is getting things done. He hasn’t produced any miracles. I hope he doesn’t. I hope he does a yeoman’s job on it all, and gets something with substance and lasting solidity. I hope it stinks of sweat and dirt. Through all the mess, it can’t fail to have some grease on it.

If I had the weight of the world on my shoulders like that, I wouldn’t be sleeping worth a damn. With 6 billion people on the line, who would?

Steve, I most definitely am not criticizing Obama by way of contrast with Bush.

On the contrary, I’m criticizing him for continuing the Bush policy basically unchanged, to the point that I’m satisfied he has taken full personal possession of it, so that we now have the Bush/Obama bailout policy.

As for the contention that Obama inherited a bad situation and has to be given time to find a new solution, this is disproved by the fact that he appointed Summers and Geithner (and apparently wanted Rubin) as his top economic cadres.

Given the facts that these personnel have spent their careers going back to the Clinton administration in the service of corporatism, that they went to heroic lengths to create an almost completely unregulated finance “industry” where all endeavor could be freely devoted to pyramid schemes and looting, which led directly and predictably to the global destruction we’re now experiencing, and that Geithner was at ground zero in the conception and execution of this bailout campaign, which is further loot conveyance; given these facts, that Obama evidently never for a second considered any alternative to these personnel and this policy is strong evidence that this is his ideology and his policy as well.

(The only alternative is that he’s in over his head and doesn’t know what he’s doing.)

Corporatism was the fundamental ideology of Clinton and Bush, while the bailout conveyance is the policy of Bush and Obama. The personnel are the constant thread running through all three.

Therefore I conclude that the ideology is also a constant, and the bailouts are endemic to the common ideology.

I’d love to see Obama radically change his ideological, policy, and personnel direction, but I can only go on the evidence we have. He was elected promising “Change”, and then he trotted out a team of retreads (not just on eceonomic policy, by the way).

A short answer: I think the public/private partnership will involve a subsidy to the private sector, most likely in the form of cheap, non-recourse loans from the Fed. These loans will have the effect of transferring much of the downside risk from the private parties to the government.

That said, there is some chance that the public/private partnership will actually help clean up bank balance sheets. My biggest worry is that it will be too complicated to actually have much of an effect.

I think there are a number of issues. In the real capitalist world that I know, bonus plans have a provision that if the company does really badly, no one gets a bonus. But I’ve never worked on Wall Street; maybe things work differently there.

Also, these bonuses were guaranteed, which means they had no performance-generating incentive at all. The only incentive they created was not to leave AIG. And the plan covered 400 out of 450 people at AIG Financial Products – I find it hard to believe they were all critical.

Actually I think we probably can. Or, rather, what makes me worried is not the level of national debt – it was much higher after World War II – but a disfunctional political system that makes it extremely difficult to raise taxes. In the long term, I think the things that matter are productivity growth (bigger pie) and, probably, higher taxes.

On the one hand, it is the “rank and file,” of AIG Financial Products, at least. On the other hand, the bonuses were guaranteed to be the same as 2007 levels, which does not really encourage people to meet goals.